Executive Summary / Key Takeaways

• Macerich is undergoing a significant transformation via its "Path Forward" plan, focused on simplifying the business, improving operations, and aggressively reducing leverage, targeting a Net Debt to Adjusted EBITDA ratio in the low to mid six times range over the next few years.
• Operational performance is showing tangible improvement, particularly in leasing velocity and the growth of the Signed Not Open (SNO) pipeline, driven by new internal tools and a strategic focus on high-potential spaces, positioning the company for accelerated NOI growth in its go-forward portfolio starting in 2026.
• The company is making substantial progress on its $2 billion asset sales and loan givebacks target, having completed or placed under contract a significant portion, alongside strategic refinancings and a recent equity raise, actively addressing debt maturities and strengthening liquidity.
• While near-term financial results may exhibit volatility due to strategic remerchandising downtime and asset dispositions, the long-term outlook is centered on achieving an 89% permanent occupancy target and realizing substantial incremental revenue from the growing SNO pipeline by 2028.
• Key risks include elevated interest rates impacting financing costs, potential tenant bankruptcies, and execution risk on planned dispositions and development projects, though management is implementing strategies to mitigate these factors.

Setting the Scene: A Retail REIT in Transition

The Macerich Company stands as a prominent real estate investment trust specializing in the ownership, operation, and development of regional retail centers and community/power shopping centers across the United States. With a portfolio strategically concentrated in densely populated, attractive markets such as California, the Pacific Northwest, Phoenix/Scottsdale, and the Metro New York to Washington, D.C. corridor, Macerich positions itself within a competitive landscape dominated by larger players like Simon Property Group (SPG), while also contending with diversified REITs like Kimco Realty (KIM) and Federal Realty Investment Trust (FRT), and facing the pervasive challenge of e-commerce.

In response to evolving market dynamics and a strategic imperative to enhance long-term value, Macerich embarked on its "Path Forward" plan around mid-2024. This comprehensive strategy aims to fundamentally transform the company by simplifying its business structure, driving significant improvements in operational performance, and aggressively reducing its leverage profile. The plan represents a deliberate shift from a historical focus on managing near-term FFO targets to a long-term vision centered on portfolio optimization and sustainable growth.

A critical component underpinning this strategic pivot is the implementation of new internal tools and technological enhancements designed to improve efficiency and provide actionable insights. A key development is the introduction of a leasing dashboard, internally referred to as the "leasing speedometer." This tool facilitates seamless collaboration among leasing, asset management, legal, and construction teams, providing real-time data that enhances visibility and streamlines decision-making, effectively reducing reliance on disparate spreadsheets and redundant processes. Complementing this is the development of five-year Argus models for each asset, serving as a foundational tool for evaluating leasing and capital allocation decisions. Furthermore, the company has undertaken a detailed ranking of all tenant spaces (A through F), coupled with market rent analysis, to identify and target opportunities for driving incremental revenue, particularly within vacant, temporary leased, and under-market spaces. These technological and analytical advancements are intended to empower teams, improve productivity, and ensure accountability in executing the strategic leasing objectives necessary to achieve the company's long-term goals.

Operational Momentum and Strategic Execution

Macerich's operational performance in the first quarter of 2025 demonstrates tangible progress under the Path Forward plan. Leasing activity saw a significant surge, with 320 leases signed for approximately 2.6 million square feet, marking a 156% increase in square footage leased compared to the first quarter of 2024. This acceleration is a direct result of the strategic focus on increasing the percentage of new lease deals versus renewals, particularly targeting A, B, and C rated spaces, which are expected to drive higher spreads and incremental revenue. The company's releasing spreads remained robust, increasing to 10.9% for the trailing twelve months ended March 31, 2025, reflecting the fourteenth consecutive quarter of positive base rent spreads.

While the leased occupancy rate saw a sequential decrease to 92.6% at March 31, 2025, primarily attributed to the natural churn of temporary and holiday specialty tenants post-season, management emphasizes that this is part of the strategic process of remerchandising spaces for higher long-term value. Excluding Eddy assets, portfolio occupancy remained strong at 95.2%. Tenant sales per square foot for spaces less than 10,000 square feet remained flat at $837 for the trailing twelve months, and comparable tenant sales saw a slight decrease in the first quarter. However, management notes that retailer demand, as evidenced by deal flow and the growing SNO pipeline, remains strong and is not directly correlated with short-term sales fluctuations. Traffic levels across the centers increased by 1.8% in the first quarter of 2025 compared to the prior year period.

The Signed Not Open (SNO) pipeline is a key indicator of future operational improvement, growing to $80 million as of the first quarter of 2025, up from $66 million in the previous quarter. The company is targeting a cumulative SNO pipeline of $100 million by year-end 2025, with approximately $25 million of the current pipeline expected to be realized in 2025 ($6 million already realized in Q1). This pipeline, particularly the $50 million remaining to achieve the plan's target, is heavily concentrated in Fortress properties and A, B, and C rated spaces, providing confidence in future revenue realization. Management expects this leasing momentum to drive same store NOI growth in the go-forward portfolio to 3-4% in 2026, accelerating significantly in 2027 and 2028, and contribute to a target of 89% physical permanent occupancy by 2028.

Strategic initiatives extend beyond leasing to include focused redevelopment projects and portfolio optimization. Key redevelopments are underway at Scottsdale Fashion Square (luxury retail/restaurant focus, expected completion 2025), Green Acres Mall (new exterior shops, grocery, anchor redevelopment, phased opening 2026-2027), and Flatiron Crossing (mixed-use HiFi development including multifamily, entertainment anchor Pindustry, phased opening starting 2027). These projects represent significant investments aimed at enhancing asset productivity and attracting diverse uses. The recent acquisition of the market-dominant Crabtree Mall for $290 million further underscores the strategy of investing in high-growth markets and properties with clear potential for operational improvement and NOI accretion.

Financial Health and Leverage Reduction

Macerich's financial performance in the first quarter of 2025 reflects the initial impacts of its strategic transformation and market dynamics. Total revenues increased to $249.2 million from $208.8 million in the prior year period, primarily driven by a 23% increase in leasing revenue. The net loss decreased significantly to $51.2 million from $131.4 million, largely due to a substantial decrease in equity in loss from unconsolidated joint ventures, influenced by the absence of the large impairment charge recorded in Q1 2024.

Adjusted Funds From Operations (FFO), a key metric for REITs, increased to $87.4 million, or $0.33 per share, in the first quarter of 2025, compared to $74.6 million, or $0.33 per share, in the same period of 2024. This improvement was primarily driven by higher leasing revenues, which more than offset increases in operating expenses and interest expense. The increase in interest expense reflects higher rates and the impact of consolidating joint venture debt, partially offset by lower revolving credit facility balances and the change in accounting for the Chandler Fashion Center financing arrangement. Depreciation and amortization also increased, largely due to the consolidation of JV properties.

A central pillar of the Path Forward plan is aggressive leverage reduction, targeting a Net Debt to Adjusted EBITDA ratio in the low to mid six times range over the next three to four years. The company has made substantial progress towards its $2 billion asset sales and loan givebacks target. By the end of the first quarter of 2025, significant dispositions and loan resolutions had been completed, with additional assets identified for sale or giveback. The sale of Wilton Mall in March 2025 and SouthPark Mall in April 2025, along with ongoing outparcel and land sales ($77 million sold or under contract against a $100M-$150M target for 2025), contribute to this effort. The company is also under contract to sell Lakewood Center, expecting net proceeds above the debt balance.

Strategic refinancings have also bolstered the balance sheet. The Washington Square loan was refinanced with a $340 million, 10-year fixed-rate loan at 5.58% in March 2025, with proceeds used to repay the Flatiron Crossing mortgage and the revolving credit facility balance. These actions, combined with a $500 million public equity offering completed in Q4 2024 and available capacity under the ATM program ($429.3 million as of March 31, 2025), provide liquidity and flexibility. As of March 31, 2025, total outstanding loan indebtedness stood at $6.8 billion, with the majority being non-recourse and fixed-rate. The company ended the quarter with $995 million in total liquidity, including $650 million of revolving credit facility capacity. The quarterly dividend of $0.17 per share is funded by operations and supports reinvestment in the portfolio.

Risks and Outlook

While Macerich is executing its transformation plan with notable momentum, several risks could impact its trajectory. Elevated interest rates pose a challenge, increasing borrowing costs on floating-rate debt and potentially leading to higher interest expenses upon refinancing existing loans, even as rates have begun to decrease slightly. Inflation is expected to negatively impact operating costs in 2025. The retail environment, while showing signs of strength in demand for prime locations, remains susceptible to tenant bankruptcies, as evidenced by the Forever 21 filing in Q1 2025, which could trigger co-tenancy clauses and impact revenue, although management anticipates the impact will not be significant. Execution risk remains for the planned asset dispositions, loan givebacks (such as Santa Monica Place, which is under receiver control), and the timely completion and lease-up of development projects.

Despite these challenges, management's outlook is one of increasing confidence, driven by the progress made under the Path Forward plan. Leasing efforts are ahead of schedule, providing greater line of sight into future NOI growth. The SNO pipeline is growing, representing significant incremental revenue potential. The company is on track with its asset sales and givebacks, actively addressing debt maturities and improving its leverage profile. Management anticipates a major inflection point around mid-2026, when the company expects to be substantially complete with the core elements of the plan, positioning it for accelerated NOI growth and a stronger financial position by 2028. While specific FFO guidance is not being provided in the near term due to the strategic focus on long-term transformation and the inherent volatility of the process, the company expects to generate positive cash flow after capital expenditures and dividends in 2025, which can be reinvested or used for further deleveraging.

Conclusion

Macerich is actively reshaping its future through the ambitious Path Forward plan. By strategically simplifying its portfolio through targeted acquisitions and dispositions, enhancing operational efficiency with new technological tools and organizational structures, and aggressively tackling its debt burden, the company is building a foundation for long-term value creation. The accelerating leasing momentum and growing SNO pipeline signal a positive trajectory for future NOI growth, particularly in the focused go-forward portfolio. While the journey involves near-term complexities and exposure to market risks like interest rates and tenant health, the significant progress on balance sheet de-risking and operational execution positions Macerich to emerge as a more resilient and higher-performing retail REIT. The investment thesis hinges on the successful realization of the benefits embedded in the growing SNO pipeline and the achievement of targeted leverage levels, culminating in a potentially significant uplift in financial performance by 2028.